As a regeneration policy it sounds almost too good to be true: an inner-city revamp that not only tempers traffic speeds and makes streets more pleasant but gives local people a stake in their community – and even alleviates loneliness. And all for a remarkably low price. That is the promised result of a two-year project in one of north London's more mixed neighbourhoods, Turnpike Lane – a scheme that its creators hope could transform urban planning around the country.

DIY Streets, created by the green travel charity Sustrans, has two elements. It proposes modest but effective physical changes to tame traffic dominance and make an area more amenable for pedestrians and cyclists. Rather than the blunt tools of speed bumps and chicanes, drivers are persuaded that they are now in a residential area through almost unconscious cues, such as patterned blockwork junctions, flowerpots in place of bollards and extended, gently rounded kerbs where pedestrians cross.

Equally important is that these changes are decided by local people, who help redesign their neighbourhood and play a direct role in its upkeep, for example "adopting" tree beds to plant with flowers. Such was the community input for Turnpike Lane that enterprising residents managed to persuade a famous US urban artist, Shepard Fairey, to decorate the peeling side wall of the local shop. "We had almost endless consultation," said Ben Addy, Sustrans's project manager for the just-completed scheme, which covered eight streets of mainly Victorian homes, around 1,000 households in all. "They live there, and they know better than anybody. There was no point us coming in and telling them what needs to be done."

After one-street pilots elsewhere, Sustrans tried out an expanded version in Turnpike Lane at the request of Haringey council, which was worried about the level of accidents in the area.

The area is bounded on three sides by busy main roads. The resulting lack of pedestrians brought a sense of isolation, with the few open spaces used mainly for fly-tipping or dog fouling, Addy said. "These were people who were often coming out of their house effectively with blinkers on, walking straight to the tube or the bus. They might have got frustrated with the area but they weren't really thinking about it as a space." Addy and Haringey's project engineer, John McQueen, spent the first year holding meetings, drafting questionnaires and sitting on sofas to canvass views and, in many cases, overcome scepticism. Plans were tested out with scale models and then using straw bales, allowing locals to suggest changes.

With an infrastructure budget of £400,000, the work was necessarily modest. Each entrance to the neighbourhood is marked with blockwork in a pattern designed by local people, as well as cherry trees. It seems effective in curbing speeds in streets where it was not uncommon for cars to hit 50mph. Outside the local school, the simple device of a wider pavement has even prompted some drivers to stop spontaneously for pedestrians.

Getting people involved was difficult given the variety of locals, ranging from Greek Cypriot households in place for 40 years, families fleeing higher house prices elsewhere and a sizeable transient population in rented flats and bedsits.

Nonetheless, Addy said, most of those who did not go to meetings at least knew what was happening: "Even just being aware of it, rather than just waking up in the morning and seeing something totally different, makes a huge difference. It really is the community side of it, I think, that is so important to draw lessons from."

This new sense of community was important. "Loneliness is a key problem in the area. As the plans went on we had people saying they felt less lonely, that they had purpose, that the community was really getting built."

It is instructive to walk round the area with Addy and McQueen and see the number of residents who stop to ask about developments or, as with Krishna Suresh, owner of the local grocery shop, explain how the changes have boosted trade. Two other locals, James Straffon and Jim Houghton, decided to find an artist to fill the frame of a defunct Victorian billboard on the shop's side wall. To their amazement they got the agreement of Shepard Fairey, creator of the famous Barack Obama "Hope" poster, who spent a day last week creating a stencilled design of a giant eyeball.

Straffon and Houghton lived on the same street but did not previously know each other. "I've lived here 20 years, but I've got to know a lot more people since all this started," said Straffon, 46. "It makes the area much more liveable."

Such a scheme cannot be repeated everywhere, not least sparing two experts to work full time for 24 months. However, according to Addy, wider lessons can be learned: "If this can set a precedent then councils can do something similar, if not as extensive. Just by engaging with people, opening up, it can make a real difference to people who aren't usually listened to."